Aussies lift interest rate as economy accelerates

SYDNEY - Australia's central bank yesterday increased the benchmark interest rate for the sixth time since October, after policy makers raised their outlook for inflation and judged the nation is insulated from Greece-sparked debt woes.

Governor Glenn Stevens boosted the overnight cash rate target to 4.5 per cent from 4.25 per cent. The decision was predicted by 18 of 24 economists surveyed by Bloomberg News.

Australia's currency fell after Stevens said borrowing costs had returned to "average" levels, ending the monetary stimulus that helped the nation avoid the global recession.

Stevens has led Group of 20 policy makers in boosting borrowing costs by 150 basis points in seven months as record mining investment stokes demand for workers and fuels inflation.

The Australian dollar dropped to US92.15c from US92.45c before the decision was announced. The New Zealand dollar was at US72.96c last night, a touch firmer than the same time on Monday, but below its more than three-month high above US73.20c earlier yesterday.

Against the aussie, the kiwi was at A78.91c from A78.76c on Monday.

Stevens, unlike counterparts in the US and Europe, is under pressure to extend a world-leading round of rate increases as Australia's economy accelerates, stoking inflation and property prices, which surged more than 20 per cent in the 12 months through March.

The Governor said inflation, which peaked in 2008, might not slow as much as earlier forecast and "now appears likely to be in the upper half" of the central bank's target range of 2 per cent to 3 per cent over the coming year.

Continued rate increases may pose a danger for Prime Minister Kevin Rudd's Labor Party, which has seen voter support slump to the lowest level since before taking power in 2007 and faces an election within a year.

The Government, which presents its annual budget next week, also faces a backlash from mining firms after announcing plans to levy a 40 per cent "super tax" on the profits of resources companies.

Yesterday's decision also suggests policy makers are less concerned about Greece's debt turmoil, which Stevens cited as a reason for holding rates in February.

"To date, there has been very little contagion outside Europe," said Stevens.

- BLOOMBERG, NZPA